Bankers group calls for a halt to cutthroat lending

INTENSE COMPETITION The association called for more active supervision to prevent a repeat of the credit-card scandal in the mortgage loan business

By Jackie Lin / STAFF REPORTER

With the unsecured consumer banking business devastated by increasing bad debt ratios on credit and cash-advance cards, most financial institutions have shifted their focus to the competitive housing loan market, pushing mortgage rates to surprisingly low levels.

But the Bankers Association (銀行公會) said yesterday that financial institutions should review their loan pricing policy -- factoring in capital costs, operational expenditures and potential losses -- to avoid price wars and jeopardizing the industry.

"Other nations like the US, Hong Kong and Singapore have similar regulations on loan pricing. We think they will also be feasible in Taiwan," Sam Wen (溫國恩), a member of the association's lending business committee, said after a monthly board meeting yesterday.

Bank of Taiwan (台灣銀行), the country's largest lender, has launched a 1.98 percent rate for the first six months of a mortgage program, while Nan Shan Life Insurance Co (南山人壽) has introduced a first-year preferential housing loan rate of 1.68 percent, which is considered lower than its capital cost.

"Overbanking and capital overflow are the two major reasons why some financial institutions undercut the competition to grab a share of the mortgage loan market. The financial regulator has therefore found it necessary to map out relevant policies to supervise and stabilize the industry," Wen said.

Meanwhile, the Fair Trade Commission said that while the bankers association is allowed to establish guidelines on how to set up loan pricing schemes, it cannot set a limit on mortgage rates -- or how low banks could offer -- as that would violate the principle of fair competition, Commissioner Chou Ya-shu (周雅淑) said.

Lank Bank of Taiwan (土地銀行), the nation's largest housing loan provider with a market share of more than 10 percent, did not completely agree with the Bankers Association's resolution.

Chu Yu-feng (朱玉峰), a senior vice president and general manager of the bank's consumer banking department, said that the mortgage business was different from the credit and cash card business, as the former involved large housing transactions while the latter could balloon quickly and easily.

"We've been in the mortgage business for a long time and know where our risk lies. But new players have jumped into the market and undercut us by offering low loan rates. I can't say that we can just ignore the competition," he said.

In response, Financial Supervisory Commission Chairman Shih Jun-ji (施俊吉) said that letting market mechanisms rule was vital, but the problem of cutthroat competition should be solved as the spread between loans and deposits continue to shrink.

"The commission is not asking for standardized pricing, but that banks' interest rates cannot be lower than their own capital costs," he said.

A reasonable pricing system will be added to the list of items subject to financial supervision in the future, as this could affect banks' risk management and financial conditions and may eventually lead to bad-debts problems, he added.